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Soybean harvest in Balcarce, Buenos Aires, in the Argentine province.
Effort and a little luck are part of the recipe presented by the Argentine government to reach the primary surplus target established in the agreement reached in January with the IMF (International Monetary Fund). The effort must be accompanied by a rigorous adjustment in the State’s accounts, combined with more severe restraint in currency issuance.
The luck that was thought to be at the beginning of Javier Milei’s government, when a record harvest was still projected, began to collapse with the high temperatures that affected much of the summer period. In addition to the heat and pests, there is an external effect: the international fall in grain prices.
“Field dollars will not be at the expected level. The prices of wheat, corn and soybeans have fallen considerably since June 2022. The drop in soybeans would be around 45%, while that of wheat and corn exceeds 50%. This leaves the farmer with little chance of profitability, in a context of high withholding taxes, different exchange rates for exports and imports, bad weather, high rents and galloping inflation”, says economist Salvador di Stefano. According to him, in 2022 the rural income was US$46.5 billion (R$231.5 billion); in 2023, US$23.5 billion (R$117 billion); and, in 2024, it should be less than US$33 billion (R$164.3 billion). “It’s a low-yield scenario,” says the expert.
Disclosure
Economist Salvador di Stefano says that rural dollars are not at the expected value
A little more optimistic is the forecast from Ieral (Institute for Studies on Argentine and Latin American Reality), indicating that net exports of agricultural products should generate something close to US$37.5 billion (R$186.7 billion) in the 2023/24 harvest and US$35.5 billion (R$176.8 billion) in 2024. This would represent an improvement of US$11.3 billion (R$56.2 billion) and US$7.5 billion (R$37.3 billion), respectively.
Below government expectations, international commodity prices started the year on a low. According to Ieral, in the case of soybeans, a ton in Chicago went from more than US$550 (R$2,700) at the beginning of 2023 to US$479 (R$2,300) in December 2023 and US$455 (R$2,200) in January 2024. According to future prices, the decline will not find a limit anytime soon: the oilseed should follow this path in the first quarter, going until September, and close at US$413 (R$ 2 thousand) per ton by the end of this year.
If confirmed, this price scenario will imply a loss of 18% in the real value of the oilseed in 2024, compared to 2023, and 24% to 28% compared to the peaks of 2021 and 2022. Commodities brokerage Allaria indicates that , according to estimates at the end of February, the prospects of abundant harvests in South America continue to weigh on the formation of grain prices, taking corn and soybeans to three-year lows.
Even in this scenario of weakened international prices, exports from cereal and oilseed companies gathered at Ciara-CEC represented revenues of US$ 1.5 billion (R$ 7.47 billion) in January, 64% above the previous year and 22% above December 2023.
More broadly, an analysis by the CAA (Argentine Agroindustrial Council) indicates that the agroindustrial sector exported 21% more in January than in the same period in 2023 and 27% more than in December, an additional US$698 million (R$3.47 billion). The complexes with the greatest relative growth between crops were cotton, wheat and grains. Wheat, corn and sunflower products had the biggest increase in the annual comparison, while soybean, poultry and rice complexes were those that most mitigated the sector’s gains.
“Liaison Desk” and commercial agreements
With the certainty that the path to the future lies in opening up to the world, Argentine rural entities are moving forward with an agenda of political action. The Liaison Board (agribusiness front formed in 2008 against the increase in taxes) is not only strengthening ties with Fernando Vilella, the country’s bioeconomy secretary, with whom it joined together to call for an end to the increase in tariffs and managed to achieve some of their demands, but also with Diana Mondino, the chancellor of Argentina.
Among the issues on the agenda are the consequences of the entry into force of EU (European Union) regulations that require deforestation-free products. In the last quarter of last year, three ships carrying around 46 thousand tons of deforestation-free soy left Argentine ports heading for Spain and Ireland.
These shipments were the result of pilot tests for the implementation, in 2022, of the Visec Protocol, which has since monitored grain production in Argentina. The requirements of the agreement are aligned with the requirements of European Union Regulation No. 1,115/2023 on deforestation-free products, which will come into force on December 30, 2024. The objective is to consolidate goods from fields that were not deforested after December 2020 and whose grains were tracked and selected, respectively, throughout the entire flow of the production chain, from the field to the port.
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Ship arrives in Rosário: agricultural exports are expected to reach R$37.5 billion in the 2023/24 harvest
Another issue raised by producers is the status of negotiations on the Mercosur-EU Strategic Partnership Agreement. The issue is causing tensions on both sides of the Atlantic. The EU had to start committing to the rigidity of the Green Pact, approved in December 2019, especially in the chapter linked to the countryside, but removing the target for reducing agricultural emissions from its climate roadmap for 2040.
The part that most worries and excites Argentine farmers is related to the opening of imports into the country, which, according to them, generates inequality in production and a difference in prices that affects them. The EU-Mercosur trade agreement has not yet managed to crystallize, in part due to the requirement for South America to adhere to climate measures promoted by Europe.
While producers adjust their numbers to the new reality — such as the sharp rise in inputs and prices linked to the dollar in the face of the devaluation of commodities, damage caused by high temperatures and withholding of taxes on the most productive items — the government begins to play a trick around his main ally, not only to receive currency, but also in return for the strong support he has shown since the beginning of the presidential campaign.
Thus, for example, the BCRA (Central Bank of the Argentine Republic) suspended control over the purchase of dollars — the so-called “cepo” — from the MEP (dollar category created in 2022 to increase currency capture) for companies that sold soy dollars. According to Di Stefano, the measure generated many problems for cooperatives, trades and other companies in the agricultural sector that were looking for coverage in the financial dollar. The political resistance of the countryside is being put to the test in the face of the change of government.
*Report originally published in Forbes Argentina